Competing Explanations of U.S. Defense Industry Consolidation in the 1990s and Their Policy Implications

Abstract

Was the consolidation of defense industry in the 1990s driven by U.S. Department of Defense (DOD) directives, or was it driven instead by the same forces that drove consolidation in many other sectors of the U.S. economy in the 1990s? To better understand the roles of DOD policy and economy-wide forces in shaping the U.S. defense industry, we test for structural breaks in defense industry and spending data and compare our findings to those relating to other sectors and the general economy. We identify structural breaks in the defense-related data in the early 1980s and throughout the 1990s, roughly consistent with changes in the U.S. economy, including broader merger trends. Overall, our results are more consistent with the view that economy-wide factors drove defense industry consolidation, largely independent of the DOD policy changes that occurred early in the 1990s.